1. Field
The present invention relates to real estate loans on properties and more particularly to a method and system for monitoring loans on properties and liens associated with those properties, determining when a secondary lien has been filed against a property, and reporting that information to an interested party.
2. Background
When purchasing real property, purchasers often require or desire to use financing. During this process, the lender often acquires a lien on the property. Liens, usually in one of two forms, enable the lender in the case of default on repayment of the loan, to either take possession and then sell the property in order to repay the loan amount or to force a sale of the property with first rights to the proceeds of the sale up to the amount owed on the loan. In either case, this right is referred to as a lien.
There are also varying degrees of liens. The first or primary lender on the property has a first lien or first position. A second mortgagee has a second lien or second position. Subsequent liens are prioritized according to a tertiary position, usually in order of recordation. A lender higher in priority is a senior lender with respect to a lender lower in priority. A lender lower in priority is a junior lender with respect to a lender higher in priority.
When a sale of a property is made or forced pursuant to the rights of one lender's lien, other lenders having liens on the same property have a right of repayment in the specified order of priority. So, for example, a second loan may be taken out on a property in order to make home improvements on the property, and the corresponding secondary lender may place a secondary lien on the property. In this case, the first mortgage lien has first position and the second mortgage lien has second position. If either loan defaults, the property may be sold and the first loan would be paid off prior to the second loan. Any remainder would be used to pay down the second loan, any remainder thereafter would pay off tertiary positions, and any final remainder would be returned to the mortgagor.
A Loan-to-Value (LTV) ratio is the loan amount expressed as a percentage of the purchase price or the appraised value of the property. For example, if a buyer makes a 10 percent cash down payment on the property the buyer is purchasing, the LTV is 90 percent. Conversely, if a buyer makes a 90 percent cash down payment on the property the buyer is purchasing, the LTV is 10 percent. If a subsequent mortgage were to encumber the property, the LTV of the property would increase because a greater percentage of the property value would become debt secured by mortgage.
For a potential purchaser of the primary loan, a high LTV signifies a greater risk that the primary loan may not be repaid by the borrower. Borrowers with little equity in the property have less to lose by a default than those with greater equity. The more equity a property owner has in a property, the more money is available to the creditor on default. Thus, the primary lender, who has loaned the most amount of money on the property, or someone interested in purchasing the primary loan, has an incentive to monitor the extent of secondary loans secured by the property. Such information is critical in assessing the LTV, and thus the present risk associated with the first loan.
Investors who are interested in buying and selling portfolios of loans on real estate, and the right to enforce first liens that accompany transfer of the portfolio, often do not know if a secondary lien has been filed against a collateral property within the portfolio. If a secondary lien has been filed against any property in the portfolio, the LTV of that property can be higher than the LTV represented in the loan portfolio, and consequently the value of the loan, and the value of the portfolio, may be lower than the originally estimated by a potential investor.
A Combined Loan-to-Value (CLTV) ratio takes both primary and secondary loans into account. CLTV is the ratio of the sum of all mortgage amounts encumbering a property to an estimate of the property worth. While a LTV may be easily established upon issuing a primary mortgage loan for purchasing real property, once the sale is finalized, the mortgagor may further encumber the property with secondary loans at any time during the life of the primary loan, freely and without notifying the primary lender. Thus, for a lender or financial institution in the business of expanding, transferring, or acquiring large loan portfolios, maintaining accurate, up-to-date CLTV data for all loans within a portfolio becomes a burdensome task, especially in a market where loans are transferred among investors like commodities. What is needed in the industry is an efficient means for updating loan portfolios to ensure that LTV and CLTV ratios may be determined with greater accuracy.